Endowment shocker - Imperial Life

Mac__2

Imperial Life - Managed & Money UK funds

Endowment taken out in 1987 to cover £23,500 with £33.12 monthly premium.

With two years to go, current surrender value is the mighty sum of £12,677.57

That's under 2% growth over 23 years.

Just wondering if anyone else is/has experienced these funds ridiculously poor performance?

Thanks!

dunstonh

That's under 2% growth over 23 years.

Just wondering if anyone else is/has experienced these funds ridiculously poor performance?

its not particularly surprising though. Money funds typically dont make much at all. Managed funds follow the markets and the last decade has been one of the worst on record. The first decade doesnt matter as you had barely any money invested then. i.e. a 30% drop in the markets in year 3 only affects 3 years worth of contributions (and future contributions buy cheaper units). A 30% drop in year 20 hits 20 years worth (with little time left to benefit from buying cheaper units).

de1amo

i had a sl endowment do equally as bad---if i managed something as badly as they seem to have got away with i wouldnt expect a bonus!!-i hope the financial services get obliterated by this mess and they join the dole queue behind the valuers and estate agents

dunstonh

if i managed something as badly as they seem to have got away with i wouldnt expect a bonus!!-

How would you have turned a better profit then in a decade that saw two of the worst economic events in generations?

i hope the financial services get obliterated by this mess and they join the dole queue behind the valuers and estate agents

Seeing as this country is so reliant on fianancial services for tax income, you might want to change that view.

Mac__2

dunstonh wrote: »

its not particularly surprising though. Money funds typically dont make much at all. Managed funds follow the markets and the last decade has been one of the worst on record. The first decade doesnt matter as you had barely any money invested then. i.e. a 30% drop in the markets in year 3 only affects 3 years worth of contributions (and future contributions buy cheaper units). A 30% drop in year 20 hits 20 years worth (with little time left to benefit from buying cheaper units).

Thanks for the reply, but surely even by these funds' standards it's pitiful performance. What was the average for the market over the past 23 years I wonder?

And are you saying the first 10 years premiums are virtually all absorbed by admin fees? I thought it was five at the very most?

Gorgeous_George

The saleman will have made more than the OP.

GG

dunstonh

Thanks for the reply, but surely even by these funds' standards it's pitiful performance. What was the average for the market over the past 23 years I wonder?

Endowments paid big surpluses for decades. So, you have to look at what changed. Some of the fault is with the insurers. Often they used too high target growth rates. Fine for the era taken when it was high inflation and boom/bust. However, not any good with low inflation and less boom/bust (ironically,the recent bust could see some long term benefit for those that have enough time left). However, you also have woeful underpeformance in the UK stockmarket compared to the rest of the world (not unusual under a labour govt). You have the FSA insisting on greater financial solvency (so with profits plans are now much more likely to be invested for solvency protection than actual rate of return). You also have the fact that the FSA has made it very difficult for insurers to trade in the UK profitably. So most have closed their doors for new business and many hold even sold up to consolidation companies (like Phoenix) where their business model is generally to run down the insurance companies they buy.

And are you saying the first 10 years premiums are virtually all absorbed by admin fees? I thought it was five at the very most?

No. Not that.

Lets say you were paying £50pm. At the end of 5 years you have paid in £3000. If you suffer a 40% market drop, you lose £1200.

Now, lets say you have paid in £50 for 20 years, thats £12,000. Now suffer a 40% drop and you lose £4800.

The drops in the early part of the contract can benefit because of lower prices. The drops near the end of the contract can really damage the value. 1988 was a big crash and that was only down 25%. In 2000-2003 the markets fell 45%. They started to grow well between 2003-2007 but in 2008 they fell 45% again. Getting one of that scale in a decade is unusual. Getting two is very rare.

I'm not trying to support the marketing of endowments or say they are a good thing. However, just trying to give you reasons why they have failed.

Ironically, those that started unit linked endowments in the late 90s, early 2000s will probably hit target and exceed them at this rate as the two big drops have helped them by units cheap and they have time on their side. Unlike those coming up to maturity around now.

Mac__2

dunstonh wrote: »

Endowments paid big surpluses for decades. So, you have to look at what changed. Some of the fault is with the insurers. Often they used too high target growth rates. Fine for the era taken when it was high inflation and boom/bust. However, not any good with low inflation and less boom/bust (ironically,the recent bust could see some long term benefit for those that have enough time left). However, you also have woeful underpeformance in the UK stockmarket compared to the rest of the world (not unusual under a labour govt). You have the FSA insisting on greater financial solvency (so with profits plans are now much more likely to be invested for solvency protection than actual rate of return). You also have the fact that the FSA has made it very difficult for insurers to trade in the UK profitably. So most have closed their doors for new business and many hold even sold up to consolidation companies (like Phoenix) where their business model is generally to run down the insurance companies they buy.


No. Not that.

Lets say you were paying £50pm. At the end of 5 years you have paid in £3000. If you suffer a 40% market drop, you lose £1200.

Now, lets say you have paid in £50 for 20 years, thats £12,000. Now suffer a 40% drop and you lose £4800.

The drops in the early part of the contract can benefit because of lower prices. The drops near the end of the contract can really damage the value. 1988 was a big crash and that was only down 25%. In 2000-2003 the markets fell 45%. They started to grow well between 2003-2007 but in 2008 they fell 45% again. Getting one of that scale in a decade is unusual. Getting two is very rare.

I'm not trying to support the marketing of endowments or say they are a good thing. However, just trying to give you reasons why they have failed.

Ironically, those that started unit linked endowments in the late 90s, early 2000s will probably hit target and exceed them at this rate as the two big drops have helped them by units cheap and they have time on their side. Unlike those coming up to maturity around now.

Thanks, good explanation. Essentially, unlucky to be hit with two crashes relatively late on in the policy's life that would adversely affect the pot that had been built up.